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London, England, United Kingdom (AHN) – The Bank of England warned on Thursday of home ownership becoming out of reach for many residents as mortgage approvals dipped and lending rules tighten further.

British banks made it harder for residents to borrow for home loans when the credit crisis hit the country in the mid-2008. The ensuing global financial crisis led to mass layoffs that caused banks to be more cautious over fears of growing mortgage loan defaults.

Among the additional requirements imposed by banks the past few months were higher deposits, which made it more difficult for first-time home buyers to apply for a housing loan or for those with existing loans to get better deals with the banks.

A consequence of these restrictions was a decline in mortgage approvals to 47,400 in August from 48,300 in July. It was the fourth consecutive month of dipping approvals and the lowest level in six months.

Economists forecast a drop in mortgage approvals would lead to house prices likely going down by 10 percent in the last months of 2010 and will continue in 2011.

The Bank of England, in its Credit Conditions Survey report, said it expects mortgage lending rules to further tighten in the next three months as lenders take a more cautious approach.

To worsen the situation for potential house buyers, the Financial Services Authority has proposed that banks impose stricter rules on borrowers and perform regular checks to ensure mortgage takers could afford interest-only mortgages. Thousands of Britons shifted interest-only mortgages to after house prices soared.

With the FSA suggestion, the Council of Mortgage Lenders predicted interest-only mortgages would soon become a thing of the past.

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